October 18, 2012
Building wealth through property is a popular investment strategy for many Australians. However, purchasing an investment property can be quite different from buying an owner-occupied home.
When people purchase the home of their dreams they look for things like: Will the location fit their lifestyle? Is the size of the house suited to their needs? Do they like the interior decorating? Things that are practical and will make them feel comfortable living in the house.
However, when purchasing an investment property, borrowers are looking at different aspects, such as ‘Is the area going to achieve good capital growth? Is the demand for rental properties strong in the area? Will the house require a lot of maintenance?’ Generally they are things that indicate whether the investment will produce a positive return.
For these reasons and more much homework needs to be done. Here are six tips that have been developed for first time investors to consider when building wealth through property.
- Be realistic about capital gain and rental income – Are your expectations around how much rental income your property will generate realistic to current market trends? Research rents in the local area and factor this into your purchase price and loan amount to obtain a good idea of what you stand to collect from the investment.
- Consider using the equity to purchase an investment property – If you already own property, you may be able to use equity in to buy another one. You can do this by selling a property for more than what you owe on it and using the funds as a deposit or by applying for a home loan against the existing property, using your equity as a deposit.
- Hold on to your first property – If you are considering upgrading your family home at some point then an investment opportunity may be right under your nose. Holding on to one of your first properties, which is often a smaller, less expensive property may be a profitable long-term investment if it is in a desirable location that sees strong demand for rental accommodation. Of course, you must be able to afford to repay a larger or second mortgage plus ongoing expenses and maintenance costs.
- Carefully weigh up positive vs. negative gearing – Consult with your financial adviser to find out whether positively or negatively gearing a property is of greater benefit to your overall financial position. Investigate the tax and legal implications associated with property investment by talking to a financial planner, accountant or solicitor.
- Choosing the right finance – Get the right finance organised early in the plan, or at least get pre-approval, so you know how much you have to play with. A reputable mortgage broker or lender can help you find a loan for your individual circumstances.
- Consider interest only vs. principal and interest loans – Although interest-only loans will not reduce the loan amount, monthly repayments will be lower. This will enable you to make greater contributions to your principal place of residence while the investment property grows in value through capital gains, if that is your strategy, while both properties hopefully experience capital growth.
Property is often a terrific investment growth strategy if wise decisions are made early on and all pros and cons are understood. Be sure to set yourself long-term goals – remember that regular income from any investment isn’t a certainty and capital gains don’t appear overnight.
Tax Tips for property investors click here
For more information contact Richard Windeyer on 1800 01 LOAN or click here to "Book a Meeting"